Inflation in the 16-nation eurozone rose to 1.7pc in July, its highest level in nearly two years.

The last time inflation in the single currency was this high was November 2008, when it stood at 2.1pc -- just above the European Central Bank's core economic target of 2pc.

The 12-month rate slipped to 1.4pc in June but has risen from 0.5pc last November as the eurozone economies emerged from the worst recession since the 1930s, European Union data showed.

In the wider, 27-nation EU, which includes non-euro member Britain, annual inflation rose to 2.1pc in July compared to 1.9pc a month earlier.

Last week, official figures showed that the eurozone economy grew at the fastest pace in four years in the second quarter as it surged past a retreating United States.

A resurgent Germany helped the combined gross domestic product of the 16 countries that use the euro rise to a better-than-expected 1pc, compared with the first three months of the year. It was the strongest quarterly expansion since the second quarter of 2006, despite a 1.5pc contraction in Greece.

On an annual basis, Eurostat said the eurozone economy grew by 1.7pc

The figures confirm that the eurozone grew faster than the US during the quarter, contrary to expectations just a couple of months ago when Europe was threatened by a severe government debt crisis.

Growth across the US slid back to just 0.6pc in the second quarter of 2010, having touched 0.9pc in the first three months of the year, Eurostat said, whereas Europe had barely managed 0.2pc growth up to March. The 27-country EU, which includes non-euro members of Britain and Sweden, also grew by a quarterly rate of 1pc for an annual increase of 1.7pc. (Wire services)